Variable percentage withdrawal

Variable percentage withdrawal (VPW) is a withdrawal method that adapts to the retiree's retirement horizon, asset allocation, and portfolio returns during retirement. It combines the best ideas of the constant-dollar, constant-percentage, and 1/N withdrawal methods to allow the retiree to spend most of his portfolio using return-adjusted withdrawals. By adapting withdrawals to market returns, VPW will never prematurely deplete the portfolio.

The VPW method uses a variable (increasing) percentage to determine withdrawals from a portfolio during retirement. Each year, the withdrawal is determined by multiplying that year's percentage by the current portfolio balance at the time of withdrawal.

The VPW method and spreadsheet were collaboratively developed and improved by a group of Bogleheads®.[1]

The spreadsheet allows backtesting on two data sets: U.S. (1871-2017)[2][3] and Canada (1970-2017)[4].

How to use variable-percentage withdrawals during retirement

Missing payments, between retirement and the start of Social Security pension, can be provided by using a simple CD ladder or short-term bond fund. For the purposes of VPW calculations, the money set aside in this CD ladder or short-term bond fund should not be considered as part of the portfolio.

With the VPW table

The following procedure should be repeated each year of retirement:

Lookup the withdrawal percentage for your age (or, for a couple, the age of the younger spouse) and the planned asset allocation of your portfolio for the upcoming year in the table below. (For example, a 65-years old retiree with a 30% Stocks / 70% Bonds portfolio would find 4.4% on line 65 under the appropriate column).

Note that the withdrawal percentage changes every year. It must be looked up, as your age has increased by one since the previous year.

Multiply the current balance of your portfolio by the looked up percentage to calculate the withdrawal amount. (For example, if the portfolio Balance is $1,200,000 and the percentage is 4.4%, the withdrawal amount is $52,800).

Note that the withdrawal amount changes every year. It must be recalculated because both the portfolio balance and the withdrawal percentage have changed since the previous year.

Withdraw the withdrawal amount and rebalance your portfolio.

Every few years, you should review your overall retirement plan.

Around age 80, if you're still alive, it is important to consider using part (but not all) of your remaining portfolio to buy an inflation-indexed Single Premium Immediate Annuity (SPIA), so that total non-portfolio income (including Social Security, pension, and other lifelong income) is sufficient to live comfortably, independently of future portfolio withdrawals. This aims to reduce the financial risks associated with living past age 100.

It is suggested to limit the withdrawal percentage to no more than 10%, after buying the inflation-indexed SPIA.

VPW Table

Variable-Percentage Withdrawal Rates Based on Age and Asset Allocation

Age

20% Stocks80% Bonds

30% Stocks70% Bonds

40% Stocks60% Bonds

50% Stocks50% Bonds

60% Stocks40% Bonds

70% Stocks30% Bonds

80% Stocks20% Bonds

40

3.2%

3.4%

3.6%

3.9%

4.1%

4.4%

4.7%

41

3.2%

3.4%

3.7%

3.9%

4.2%

4.4%

4.7%

42

3.2%

3.4%

3.7%

3.9%

4.2%

4.4%

4.7%

43

3.2%

3.5%

3.7%

3.9%

4.2%

4.5%

4.7%

44

3.3%

3.5%

3.7%

4.0%

4.2%

4.5%

4.7%

45

3.3%

3.5%

3.7%

4.0%

4.2%

4.5%

4.8%

46

3.3%

3.5%

3.8%

4.0%

4.3%

4.5%

4.8%

47

3.3%

3.6%

3.8%

4.0%

4.3%

4.5%

4.8%

48

3.4%

3.6%

3.8%

4.1%

4.3%

4.6%

4.8%

49

3.4%

3.6%

3.9%

4.1%

4.3%

4.6%

4.8%

50

3.4%

3.7%

3.9%

4.1%

4.4%

4.6%

4.9%

51

3.5%

3.7%

3.9%

4.2%

4.4%

4.6%

4.9%

52

3.5%

3.7%

4.0%

4.2%

4.4%

4.7%

4.9%

53

3.5%

3.8%

4.0%

4.2%

4.5%

4.7%

5.0%

54

3.6%

3.8%

4.0%

4.3%

4.5%

4.7%

5.0%

55

3.6%

3.9%

4.1%

4.3%

4.5%

4.8%

5.0%

56

3.7%

3.9%

4.1%

4.3%

4.6%

4.8%

5.1%

57

3.7%

3.9%

4.2%

4.4%

4.6%

4.9%

5.1%

58

3.8%

4.0%

4.2%

4.4%

4.7%

4.9%

5.1%

59

3.8%

4.0%

4.3%

4.5%

4.7%

4.9%

5.2%

60

3.9%

4.1%

4.3%

4.5%

4.8%

5.0%

5.2%

61

3.9%

4.2%

4.4%

4.6%

4.8%

5.0%

5.3%

62

4.0%

4.2%

4.4%

4.6%

4.9%

5.1%

5.3%

63

4.1%

4.3%

4.5%

4.7%

4.9%

5.2%

5.4%

64

4.1%

4.3%

4.6%

4.8%

5.0%

5.2%

5.4%

65

4.2%

4.4%

4.6%

4.8%

5.1%

5.3%

5.5%

66

4.3%

4.5%

4.7%

4.9%

5.1%

5.4%

5.6%

67

4.4%

4.6%

4.8%

5.0%

5.2%

5.4%

5.6%

68

4.5%

4.7%

4.9%

5.1%

5.3%

5.5%

5.7%

69

4.6%

4.8%

5.0%

5.2%

5.4%

5.6%

5.8%

70

4.7%

4.9%

5.1%

5.3%

5.5%

5.7%

5.9%

71

4.8%

5.0%

5.2%

5.4%

5.6%

5.8%

6.0%

72

4.9%

5.1%

5.3%

5.5%

5.7%

5.9%

6.1%

73

5.0%

5.2%

5.4%

5.6%

5.8%

6.0%

6.2%

74

5.1%

5.3%

5.5%

5.7%

5.9%

6.1%

6.3%

75

5.3%

5.5%

5.7%

5.9%

6.1%

6.3%

6.5%

76

5.5%

5.6%

5.8%

6.0%

6.2%

6.4%

6.6%

77

5.6%

5.8%

6.0%

6.2%

6.4%

6.6%

6.8%

78

5.8%

6.0%

6.2%

6.4%

6.6%

6.8%

7.0%

79

6.0%

6.2%

6.4%

6.6%

6.8%

7.0%

7.2%

80

6.3%

6.4%

6.6%

6.8%

7.0%

7.2%

7.4%

81

6.5%

6.7%

6.9%

7.1%

7.2%

7.4%

7.6%

82

6.8%

7.0%

7.2%

7.3%

7.5%

7.7%

7.9%

83

7.1%

7.3%

7.5%

7.6%

7.8%

8.0%

8.2%

84

7.5%

7.6%

7.8%

8.0%

8.2%

8.4%

8.5%

85

7.9%

8.0%

8.2%

8.4%

8.6%

8.8%

8.9%

86

8.3%

8.5%

8.7%

8.9%

9.0%

9.2%

9.4%

87

8.9%

9.0%

9.2%

9.4%

9.6%

9.7%

9.9%

88

9.5%

9.7%

9.8%

10.0%

10.2%

10.3%

10.5%

89

10.3%

10.4%

10.6%

10.7%

10.9%

11.1%

11.2%

90

11.1%

11.3%

11.5%

11.6%

11.8%

11.9%

12.1%

91

12.2%

12.4%

12.5%

12.7%

12.9%

13.0%

13.2%

92

13.6%

13.8%

13.9%

14.1%

14.2%

14.4%

14.5%

93

15.4%

15.5%

15.7%

15.8%

16.0%

16.1%

16.3%

94

17.7%

17.9%

18.0%

18.1%

18.3%

18.4%

18.6%

95

21.0%

21.1%

21.3%

21.4%

21.5%

21.7%

21.8%

96

25.9%

26.1%

26.2%

26.3%

26.4%

26.6%

26.7%

97

34.2%

34.3%

34.4%

34.5%

34.6%

34.7%

34.8%

98

50.6%

50.7%

50.8%

50.9%

50.9%

51.0%

51.1%

99

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

With the spreadsheet

Open the spreadsheet with Microsoft Excel or LibreOffice Calc.

Click on the Instructions tab and read its content.

Click on the VPW tab and:

Enter the Start Year and Start Age of your retirement. (For a couple, use the age of the younger spouse).

Each year:

Check that the asset allocation corresponds to the planned allocation of your portfolio for the upcoming year (Domestic Stocks, International Stocks, and Domestic Bonds). If necessary, adjust the values. (This happens, for example, when a retirement portfolio is on a glide path).

At the beginning of the year, enter the Balance of your portfolio to compute the Suggested Withdrawal amount.

Make the withdrawal and rebalance your portfolio (at the beginning of the year!).

As soon as your withdrawal is made, record it in the Actual Withdrawal column.

Every few years, you should review your overall retirement plan.

Around age 80, if you're still alive, it is important to consider using part (but not all) of your remaining portfolio to buy an inflation-indexed Single Premium Immediate Annuity (SPIA), so that total non-portfolio income (including Social Security, pension, and other lifelong income) is sufficient to live comfortably, independently of future portfolio withdrawals. This aims to reduce the financial risks associated with living past age 100.

It is suggested to limit the withdrawal percentage to no more than 10%, after buying the inflation-indexed SPIA.

Spreadsheet Download location

Dropbox

Google Drive

Hover your mouse near the top of the page and click on the icon to download the file.

If you see "Whoops! There was a problem previewing this document.", click on the Download icon underneath the message.

Spreadsheet compatibility

The spreadsheet is developed using the open-source LibreOffice Calc software, available here. As a result, some compatibility issues may arise when using other spreadsheet products.[note 1]

Microsoft Excel

Microsoft Excel may raise an Office File Validation security error. This is because the spreadsheet was not built using Microsoft software; it was built using OpenOffice Calc and saved as Microsoft Excel format. Consequently, Excel raises a warning to the user. This error can be safely ignored.

There is a difference in the way Excel and LibreOffice Calc displays charts. Excel does a nicer job.

Google Drive

Google Drive is unable to display the spreadsheet correctly. Instead, download the file and use with LibreOffice Calc or Microsoft Excel.

Screenshots

Screenshot

Variable Percentage Withdrawal for Advanced Users

This advanced spreadsheet combines various calculations with VPW to calculate a portfolio withdrawal for the current year based on the current portfolio balance, current pensions and future pensions promises with and without cost of living adjustment (COLA), as well as desired residual portfolio. The spreadsheet is targeted at advanced users who fully understand the risks of filling the gap in future pension payments with withdrawals from a portfolio of fluctuating assets.